Reasons Why You Need a Budget
Step 1 - in creating a budget is to identify the amount of money you have coming in. Your final take-home pay is called net income, and that is the number you should use when creating your budget.
Step 2 - categorize what you're spending so you know where you can adjust. This step will help you identify what you are spending the most money on and where to cut back.
Step 3 - Start by listing all your fixed expenses. It might be easier if you use a budget template like the one shown here provided by RYFC.
Step 4 - make a list of all the financial goals you want to accomplish in the short- and long-term. Short-term goals should take no longer than a year to achieve. Long-term goals, such as saving for retirement or your child’s education, may take years to reach.
Remember, your goals don’t have to be set in stone, but identifying your priorities before you start planning a budget will help. For example, it may be easier to cut spending if you know your short-term goal is to reduce credit card debt.
Step 5 - use the variable and fixed expenses you compiled to help you get a sense of what you’ll spend in the coming months. Use your fixed expenses, to help predict accurately how much you’ll have to budget for. Use your past spending habits as a guide.
Step 6 - Adjust your habits once you’ve done all this, you have what you need to complete your budget. Having documented your income and spending, you can start to see where you have money left over or where you can cut back so that you have money to put toward your goals.
Individuals and families have budgets too, of course – or they should have. Creating and using a budget is not just for those who need to closely monitor their cash flows from month to month because "money is tight"; it's a valuable tool for all demographics. Almost everyone, even those with large paychecks and plenty of money in the bank, can benefit from budgeting.
Budgets Help You Make Investments and Track Them
Investing isn't just for the rich. Sensible investments can put you on the same path to wealth, and a comprehensive budget helps you find money to allocate in that direction. Saving money is important, but savings accounts traditionally earn pitifully poor interest.
It ensures you don't spend money that you don't have
Far too many consumers spend money they don't have – and we can owe it all to credit cards. Before the age of plastic, people knew if they were living within their means. At the end of the month, if they had enough money left to pay the bills and sock some away in savings, they were on track. These days, people who overuse and abuse credit cards don't always realize they're overspending until they're drowning in debt.
It helps you prepare for emergencies
Life is filled with unexpected surprises, some better than others. When you get laid off, become sick or injured, go through a divorce or have a death in the family, it can lead to some serious financial turmoil. Of course, it seems like these emergencies always arise at the worst possible time – when you're already strapped for cash. This is exactly why everyone needs an emergency fund. Build it into your budget, set realistic goals and start small. Even if you put just $10 to $30 aside each week, your emergency fund will slowly build up.